consulting philosophy

The CFO helps the CEO run the company. The CEO’s job is to set a vision (often defined by a strategy and direction), organize and hire management, build a culture and make sure the firm has enough capital. A CFO partners with the CEO by buying into the vision and taking on responsibilities for managing capital and building the management team and culture. The quality of investment decisions as overseen by the CEO and CFO of a company will determine the long term price of the stock.

My central insight as a CFO is that the long term return on a stock investment is driven by the long term returns on the projects selected by the firm. The sum of all the projects that a company invests in becomes the firms’ ROI. High ROI stocks attract capital and grow. If a firm invests in projects with low returns, then they will end up with a company in total with low returns. This is obvious. The value of low return firms hovers around book value which is an estimate of the cash (breakup) value of the firm. Avoiding projects that have low returns on capital is step one in managing growth. Although this seems obvious, it happens all the time. Here are two firms that saw the problem and fixed it. There are many more examples of firms who didn’t fix their ROI problem.

The tools I used as an advisor to investors are the same tools that smart CFO's regularly use to evaluate their own company's performance. Great CFO’s exist both in and outside their businesses. This change in perspective is the essential difference between a controller and a CFO. Great companies become great because they balance customer, employee and shareholder requirements. This balance results in the best long-term return for investors, and turn out to be the best places to work and popular with customers.